NEW office space in Greater Kuala Lumpur emerging in the next four years will take seven years to be occupied, property consultancy Savills Malaysia Sdn Bhd said.
Its chairman Christopher Boyd said existing office supply in 2017 was 120.8 million sq ft and this would have risen to 141.8 million sq ft in the next four years.
This increase of 21 million sq ft in the market will take seven years to absorb at an optimistic calculation of 2.7 million sq ft annually, he said.
“That’s quite a respectable number and it puts us as larger than Singapore, Bangkok and Manila. The space is contained in a number of new projects which (have been) approved for development, which in most cases are (already) under construction. Not just planned, but physically taking shape,” he told The Malaysian Insight.
The absorption rate for new office space in 2017 (1.14 million sq ft) was better than 2016 (0.36 million sq ft) because of developments such as Menara Public Bank 2, MYEG Headquarters in Empire City and Sunway GEO tower, Boyd said.
Developments in 2018 and 2019 that would increase supply include Tun Razak Exchange (TRX) developments such as The Exchange 106, Prudential headquarters, Equatorial Plaza, Menara Dayabumi Phase 3, YTL headquarters, TCM tower, Mercu 2, KL Eco City, Mid Valley Southpoint and Etiqa Bangsar.
In Selangor, the HCK tower, Celcom Tower, Symphony Square and Nucleus tower are in stages of completion.
Boyd said planners need to address concerns whether the incoming supply would contribute to a deeper “oversupply rut”.
“In a good year when the office space market is humming along, the net absorption rate is between two to three million sq ft per annum.
“Under the Economic Transformation Programme (ETP) there are plans to create more office jobs that would require more office space.
“However, the general prevailing market sentiment has led to a slowdown in the office market over the last two to three years.”
For Kuala Lumpur, the economy has been a factor in the office property slowdown as about 70% of office tenants were related to the oil and gas sector.
The drop in crude oil prices had been the single biggest factor in the drop in demand for office space, he said.
“(However), other sectors will expand to fill in the gaps that are left by oil and gas. Particularly finance, IT and other professional services.
“For example, in 2016 the absorption was 1.35 million sq ft in Greater KL and we had a slightly better year in 2017 with 1.82 million sq ft.
Glut to be outside TRX
Boyd said the 70-acre TRX commercial development was proving itself successful in positioning itself as the city’s financial district.
“Before TRX came along there wasn’t anywhere in the golden triangle which said that this was where a bank had to have its head office. KLCC became the oil and gas hub with Petronas, so where do the banks go? And (as such) they were located all over the place.
“Buyers of the site (at TRX) include Prudential, HSBC and Affin Bank. These are all going to be owner-occupiers so it won’t add to the oversupply but leave behind empty space when they move from their old buildings.”
“It’s not going to be a forest of empty buildings, that’s for sure,” Boyd said, adding however, that it was difficult to predict when TRX would be fully occupied.
“By 2020 the most of the first generation of buildings would be completed and we will see about 80% to 90% occupancy rate.
“There will never be any speculative empty office space in TRX because that’s not their business model. The only impact on the market is outside TRX. The buildings that are left behind when tenants move out.”
Vacant office space will be created when companies move to new premises, leaving behind buildings that were built 30 or 40 years ago. Even though these were buildings in the the city’s Golden Triangle area, they were built for lower density and plot ratios.
“The old plot ratio at the Golden Triangle use to be 4:1, so very often the underlying land value exceeds the value of the building.
“That’s is the tipping point, when they are ready for redevelopment, the owners have made their money so they will wait for the right time to redevelop or sell it.
“This is a snapshot of the renewal process that can be seen happening in the city,” he said.